Published Tuesday July 27, 2021 |  CNBC.com

The recent Dow Jones Industrial Average one-day plummet of 900 points didn’t stick, but the Nasdaq reversal on Tuesday led the market lower, and the Dow and S&P 500′s first down day in six, came uncomfortably right ahead of big tech earnings.

A recent survey of stock traders with $1 million or more in a brokerage account shows one reason why the bull market quickly resumed and why any single-day decline in stocks, tech or otherwise, may not stop the current bull market run from continuing. Wealthy, veteran investors were a little more bullish coming into third quarter earnings than they were just one quarter ago, and remain convinced in the strength of the U.S. economy and the opportunity to chase profits in the tech sector.Millionaires describing themselves as bullish rose by 7 percentage points quarter over quarter, from 58% to 65% of investors, according to a survey of self-directed investors from Morgan Stanley’s E-Trade Financial. The largest group of millionaires expect gains to be modest, with a little less than half (46%) forecasting a 5% maximum gain. But very few foresee the big drop that bears have feared: only 6% of survey respondents said the markets will fall by 10% or more this quarter.

Economic growth may still disappoint
The wealthy have an improved outlook on the U.S. economy even as inflation fears persist. The percentage of millionaires who graded the economy an A or B grade this quarter was up 13 percentage points since Q2, rising from a minority 39% last quarter to 52% at the start of Q3. Those who seemed unsure in Q2 (the 44% who graded the economy at a C) have moved into the more bullish camp, with that view falling to 29% of millionaires this quarter. Forty-one percent of millionaires described the current economic period as “expansionary” which was up from 30% who held that view last quarter.

“Optimism has the psychological momentum,” said Lew Altfest, CEO of Altfest Personal Wealth Management. But he added that the virus still has the potential to reverse that, evidenced by the Dow’s 900-point drop as the delta variant came into focus — the CDC is now revising its masking guidance again to be more cautious indoors — though he thinks the bigger risk to investor sentiment is that growth is just not as good as current expectations. “The optimism I have shared for a longer period of above-average growth is what we can still have, but the logical situation is sometime next year, less than a year from now, we will be looking at normalized growth and that isn’t what people want to hear.”

It is the reason that the bond markets have not reacted to Fed discussion of inflation and raising rates by pushing yields higher; in fact, fears of less than stellar economic growth have sent yields down in recent weeks.

Altfest said investors want to believe in the rosy outlook, and the year-over-year comparisons are large given the sudden recession caused by Covid-19, but if economic growth moderates to 2% to 2.5%, “that could be a psychological sobriety” event for investors, especially in light of high U.S. stock market valuations.

Read the full article: Why wealthy investors remain bullish on market and tech stocks in particular

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